Francorp - The Franchising Leader in the Philippines
Francorp - The Franchising Leader in the Philippines

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Top Franchising Trends in 2015

TOP FRANCHISING TRENDS in the Philippines 2015
Noel Siggaoat
Managing Director
Francorp Philippines

At Francorp, we live and breathe franchises. Day in and day out, we help start-up and established businesses grow from one to many through franchising. In the course of doing franchise consultancy work for close to twenty years now, Francorp has been at the forefront of the latest trends in franchising in the Philippines. Below are the top three trends that will impact the Philippine franchise landscape in the next year or two, and beyond.

1. The Boom in Education Franchises

Education franchises have been around for many years now but in the last year or so, we’ve seen an explosion of education businesses opening their doors to franchising. In this category are pre-schools, math programs (computational or analytical), reading enrichment programs, professional review schools, specialty skills schools, to name a few. The origins of these concepts are both foreign and homegrown.

The demand for education in all its forms is a good sign for a country like the Philippines as it gains momentum towards developed-country status in the next decade or so. Another explanation for the growth in schools is the growing number of parents who don’t mind spending on development programs for their children, believing that these are complementary to formal education and will contribute to the child’s overall development. Of course, the growing young population is an important driver of demand for this segment.

This increasing demand for education makes enterprising Filipinos go into the education business as start-up entrepreneurs or as franchisees.

Recent Francorp clients in this category are the Canadian Tourism and Hospitality Institute (CTHI), Aloha Arithmetic, Readsmart Learning Center (formerly Infant Jesus Montessori), Explorations Pre-School, Mathemagis Singapore Math, and CMA Mental Arithmetic.

2. Use of franchising to reduce distribution layers

The traditional franchisor is the retail store or restaurant owner who goes into franchising to increase his number of branches. We are seeing a new breed of franchisors: Original manufacturers or master distributors going into franchising to reduce their distribution layers.

The Generics Pharmacy is one of the first to adopt this strategy. Instead of staying with the traditional system of supplying to distributors, who then supply to other distributors, or to stores and retailers, many manufacturers and master distributors are reducing the distribution channel by putting up their own stores directly and making these available through franchising.

Instead of being at the mercy of third-party retailers at the end the channel, these brand owners or master suppliers are controlling their own destiny by specifying how the store will look, how the products are marketed, and even the price at which these products are sold to the end consumer.

By cutting out the middle man, brand owners are able to lower the retail price of their products. Additionally, they are able to increase margins for those that remain in the channel.

Francorp clients who have adopted this strategy aside from The Generics Pharmacy are PR Gaz Haus, and Holcim Cement.

3. More complex franchise formats

For many years, franchise formats in the Philippines were the garden-variety Single Unit franchise. As the franchise industry becomes more mature, more innovative and complex formats are being employed.

Franchisors are now looking to add multi-unit formats like Area Development franchises and Master franchises to their offerings. Area Development franchisees are wholesale multi-unit owners who are given exclusivity for a city or province. Master Franchisees usually own the rights to an entire state or country and also have the option to sub-franchise to third-party investors. This is commonly used for international expansion.

Some franchisors are also offering Conversion Franchises, where independent store owners already in a similar business convert their stores and become part of the franchisor’s brand and network. Some franchisors go into Joint Ventures with their franchisees and are part-owners of the franchise store. In this set-up, they earn as a franchisor and a franchisee at the same time. Some franchisors, on the other hand, intentionally look for passive franchisees who are only interested in putting up the capital for the franchise unit; the franchisor himself will manage the franchise for an additional fee.

As franchising continues to grow in the Philippines, we may see more of these newer and innovative formats to meet the needs, capabilities, and goals of franchisors and franchisees.

Noel Siggaoat is the Managing Director of Francorp Philippines. An MBA graduate of the Carnegie Mellon University of Pennsylvania and a Certified Franchise Executive (CFE), he heads the firm’s consultancy practice. Noel has a diverse background in IT, finance, retailing, and franchising and has worked with companies here and abroad. He is a weekend athlete who has completed marathons, a half-Ironman, and other endurance events.

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